I was rummaging through our box of Christmas ornaments, trying to find the lights for our Christmas tree when I came across a package of brand new lights. “LED Christmas Lights”, the glossy white letters said. This got me thinking, again, of a very exciting growth opportunity for years to come.LED stands for light emitting diodes, which is a semiconductor light source. Basically it is a hi-tech light bulb. One of the key advantages of LED-based lighting is its high efficiency, as measured by its light output per unit power input. According to Cree, an LED manufacturer, LEDs use 10 percent to 15 percent of the power of an incandescent light bulb and about half the power of a fluorescent bulb.The other big advantage to a LED bulb is that it lasts 50,000 hours or 50 times longer than an incandescent light bulb, and five times longer than a fluorescent bulb.Chances are you already use several products every day that have LEDs in them. Mobile phones and laptops were some of the early adopters, but now they can be found in LCD televisions and general lighting. LEDs offer a compelling technological change in how we light the world.Early Stages of Phenomenal GrowthIt is difficult to forecast the timing of the growth in LEDs, but the large size of the addressable market is nearly undisputable. Right now LEDs are prevalent in laptop and mobile phones. They are in about 25 percent of LCD TVs so there are some future growth opportunities there. LED TV penetration could reach 85 percent by 2012. However, the real growth aspect comes from the general lighting market. At only two percent penetration in general lighting, I would expect this cycle to ramp over a period of several years.Based on research data from Digitimes Research, the high brightness LED market will grow to $12.6 billion in 2011, up 53 percent from $8.25 billion in 2010. They also note that global LED light bulbs may increase significantly from 596 million units in 2011 to 2.5 billion units in 2013.Philips and General Electric now estimate that by 2015 50 percent of their sales of light bulbs will be LED based, and 75 percent by 2020. This equates to an expected cumulative annual growth rate of about 45 percent.Street lighting will likely be the first mainstream general lighting application to make full use of LEDs. Digitimes sees LED streetlamps increasing from 2.2 million units in 2011 to 9.8 million in 2013. There are a few key reasons for this: longevity of LEDs versus alternative lighting technologies, the energy savings and the lower cost of sending a repairman to replace the bulb.Streetlights are on for an average of 10 to 12 hours per night and as such, consume a significant amount of energy. Additionally, street lamps are expensive to replace. Therefore, LED lights are easily the best solution for this application. The City of Los Angeles has committed to replacing 30,000 street lamps per year with new LED retrofits. The People's Republic of China (PRC) is expected to install more than 400,000 LED streetlights in 2010. I'd expect this trend to continue as, quite simply, it is the most cost-effective solution.I would expect LED lighting to continue to take market share from both incandescent lights along with compact fluorescents and halogen lights. Newly introduced utility energy-efficiency incentives have been enacted. For example, back in 2007, President Bush inked an 822-page energy measure that included a future ban on 100-watt incandescent bulbs by 2012.This energy measure was intended to make way for bulbs that would use 25 percent to 30 percent less energy, shave an estimated $18 billion off electric bills, and cut consumer electricity usage by 60 percent. The main reason is largely financial.While the cost of a LED light is almost $40, versus $8 for the halogen flood light and $11 for the compact fluorescent, over the course of 30 years, an average consumer using an LED light would expect to save over $435 versus traditional flood lights and over $30 versus a CFL. In reality, with an expected useful life of over 50,000 hours, this comparison will get even more attractive over a longer period of time.With that being said, I don't expect people to rush out and buy $40 light bulbs, but I do see the industry continuing to lower the price point in order to drive widespread customer acceptance. Should the industry reduce the price by 15 percent per year for the next three years, then the price to the consumer should be around $25 per fixture, which starts to be more palatable to the general consumer and compares favourably to CFL bulbs today.Because of this, residential large scale adoption of LEDs is still likely a few years away. It would seem reasonable to expect significantly faster growth from commercial segments of the economy as longer usage periods and focus on return on investment versus initial costs are more important decision-making criteria.How Do You Play This?There are a number of ways to get invested in this theme. You could go out and buy the actual manufacturer of LEDs: Epistar (2448 TT), Everlight (2393 TT), Semco (009150 KS), Seoul Semi (046890 KS), or Cree (CREE). Alternatively you can invest in the picks and shovels guys, the companies that make the machines that help these manufactures produce the LED products: Veeco (VECO), and Aixtron (AIXG).Regardless of what you might think about the future market for LEDs, I do have to say that the lights look great on a Christmas tree.Full disclosure: The author and clients of Anchor Investment Management own positions in VECO. This column should not be construed as investment advice. An investor's best course of action must be based on individual circumstances.Nathan Kowalski is the chief financial officer at Anchor Investment Management. He holds a Chartered Financial Analyst (CFA) designation and Chartered Accountant (CA) designation.